Retiring later? Think about it now!

The scrapping of the favourable pension scheme for Dutch civil servants had hidden side effects, such as reduced motivation and productivity. This was Dr. Raymond Montizaan’s conclusion several years ago following a study by Maastricht Research Centre for Education and the Labour Market (ROA), a research institute of Maastricht University School of Business and Economics. Now he is leading a new study with much more alarming results: “We’re not well prepared for the consequences of the increased retirement age, and many people are finding themselves in financial difficulties.”

Montizaan feels at home in Maastricht. Born and raised in Apeldoorn, he enjoys the cultural atmosphere of the city. The last European Fine Art Fair was not lost on him, he reflects, sitting in his office on an early spring day in 2014. But as a researcher at ROA, he is less optimistic. In fact, he is downright concerned about the results of a recent, comprehensive study on the effects of the increase of the retirement age to 67. “Neither employers nor employees are really aware of the consequences”, he says. “People don’t yet realise that they’ll have to work longer and they’ll receive a lower pension than expected. Most employers still adhere to the social norm of no longer investing in staff over the age of 55. Unconsciously, perhaps, but to keep employees productive and motivated, employers must provide training and courses. After all, the point is to keep their knowledge and skills up to date. The days of people sailing off into the sunset at the age of 62 are long gone.”

Retirement age

The problem in the Netherlands, as in other European countries, is clear. There are too few workers to pay the premiums needed to keep the social welfare system afloat. Cutbacks were first made to early retirement schemes, and now the retirement age is gradually increasing to 67 to ensure there are enough workers to line the state pension pot. But can everyone really keep on working so long? “It depends on the sector. People who do strenuous physical or mental work tend to run out of steam earlier, and are declared unfit for work or laid off. Either way they end up on benefits, which just puts more strain on the social welfare system in a different way.”

So is Montizaan calling for a reversal of policy? “No, that train has left the station. The current policy places more responsibility on individuals. But our research shows that few people are aware of the risks and consequences. If they want to retire earlier, they need to take action to supplement their pension. They can save, take out an insurance policy, invest in a house. There are plenty of options, and the earlier you start, the better. Of course, it requires discipline. It’s more fun to spend money now. I like eating out on weekends too, or picking out a nice bottle at the wine merchant. But it’s important to take a long-term view. Young people in particular tend to neglect their pensions, yet they’ll be the hardest hit. They are accruing lower pensions and, thanks to the reduced premiums, a lower proportion is covered. That’s nice for your net income now, but you’ll get the bill later. Set that ‘profit’ aside, that’s my advice.”

The research also shows that few employees know how much – or how little – their pension will be. “We examined the files of APG, the pension manager for the civil service and the education sector. These are well-educated people, but their financial knowledge is often limited. This is unlikely to be much better in other sectors. So it’s important to communicate better, do more in terms of information provision. The first step is to raise awareness.”

Side effects

Incidentally, Montizaan says, working longer is by no means a panacea. His earlier research on the scrapping of the early retirement scheme for civil servants revealed unexpected side effects. “There were problems with motivation and lower productivity. Especially among people who fell just outside the scope of the old scheme. They felt unfairly treated, and that wasn’t about the money. Something can be done about this dissatisfaction: continue to invest in older workers. Training and courses are often seen as rewards. This helps employees keep up with the times and they’ll be more willing to pass on their knowledge to younger colleagues. But our research shows that while larger organisations are prepared to invest in people over the age of 55, smaller organisations often aren’t. We also still see the existing prejudices: older people tend to get sick, they’re less productive, less interested in learning new things. Studies are challenging these prejudices more than ever. Now that the retirement age is shifting, it’s important for employers to move with it and invest more in their older workers. But we still have a long way to go; the labour market has not yet adapted to the higher retirement age.”

Raymond Montizaan (1980) has worked at ROA, part of Maastricht University’s School of Business and Economics, since 2010. He studied economics in Nijmegen and Tilburg, and obtained his PhD in Maastricht in 2010 on the theme of pension entitlements and welfare. Montizaan is a fellow at the Graduate School of Business and Economics and the international research institute IZA, and has authored and co-authored dozens of academic publications.